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Dairy Australia - Market News


04 October 2013

Dairy Australia - Fortnightly Update 4 October 2013Dairy Australia - Fortnightly Update 4 October 2013

Dairy commodity prices defied expectations at this week’s GDT auction (event 101), Vietnam’s largest dairy company, Vinamilk, has publicised its intention to double its annual revenue to US$3 billion (A$3.2bn) by 2017 through overseas expansion and Fonterra has increased its forecast for the 2013/14 New Zealand Farmgate Milk Price to NZ$8.30/kg MS (A$7.69/kg MS).
Dairy Australia - Market News

Global Developments

Dairy commodity prices defied expectations at this week’s GlobalDairyTrade (GDT) auction (event 101), as bullish results amongst key products drove a 2.4% increase in the GDT price index. SMP was a particularly strong performer, with an average increase of 3.9% pushing pricing to US$4,491/t—the highest level since July. Product for February delivery did ease back slightly, possibly in deference to the northern hemisphere production outlook that continues to strengthen; however, the forward curve continues to indicate resilience in the market. WMP pricing (up 2.3% to US$5,208/t) reached its highest average since the April peak, however in contrast to April the forward curve is virtually flat, with the Contract 6 (April 2014) product fetching US$5,427/t and attracting the largest premium to the average. AMF bounced back 2.7% (to US$5,062/t), while butter, a strong performer last auction, inched up 0.1% to achieve US$3,915/t. For full results see: www.globaldairytrade.info

Vietnam’s largest dairy company, Vinamilk, has publicised its intention to double its annual revenue to US$3 billion (A$3.2bn) by 2017 through overseas expansion. Cambodia is the current focus of the company’s activity, with plans for a UHT, condensed milk and yoghurt factory awaiting approval from Cambodian authorities. The proposed joint venture with a local company would join a soon-to-be-opened plant in the capital Phnom Penh, and represents aggressive expansion plans that may soon include the US, where the company has recently received Food and Drug Administration (FDA) approval.

Fonterra has increased its forecast for the 2013/14 New Zealand Farmgate Milk Price to NZ$8.30/kg MS (A$7.69/kg MS), citing ‘robust’ demand for dairy commodities which is in turn supporting strong international pricing. CEO Theo Spierings has cautioned that the business faces ‘headwinds’ including lower export earnings in early 2014, when compared to strong H1 2013 results. Fonterra has also confirmed media reports that it is involved in a dispute resolution process with Danone, following a recall of products containing whey protein concentrate in August. Danone-owned brands including Dumex and Nutricia infant formulas were caught up in the food safety scare that was subsequently confirmed to be a false alarm. Fonterra ‘strongly denies’ any legal liability to Danone, while Danone has maintained that it should be fully compensated for damages caused by the recall.

The Australian Front

Since Bega Cheese (BGA) announced its formal takeover bid for Warrnambool Cheese & Butter (WCB) the latter’s directors have issued multiple letters advising shareholders to reject the offer: board and management have stated that the offer does not ascribe fair value to the company. In its 2 October Trading Update, WCB also pointed to an ‘improved earnings outlook,’ including higher expected EBITDA (2013/14: $47-52 million). However, the market will have to wait for WCB’s formal target statement expected by mid-month to see the assumptions underpinning the company’s 2013/14 EBITDA forecasts. BGA’s bidder statement and offer dated 2 October stipulates that the offer closes 28 November— ‘unless extended’—as provided for under the Corporations Act; and, with no indication that the offer will be withdrawn in the short term, extension appears likely.

Woolworths (WOW) has launched its trial of Farmers’ Own branded milk, with product on sale in the dairy cabinets of 8 WOW stores on New South Wales’ north coast. A group of 7 Manning Valley farmers aiming to secure higher farmgate prices, long-term supply contracts, and influence product marketing reportedly took the Farmers’ Own initiative to WOW. With Parmalat processing and packaging, WOW’s move in (a) securing supply (under 3-year contractual arrangements) from the Manning Valley group and (b) marketing the Farmers’ Own brand capitalises on consumer interest in provenance and ‘line of sight’ to producers. More dairy ‘localisation’ is expected.

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